Odd Lots How China Might Actually Handle a US Trade War
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May 8, 2025 
Arthur Kroeber, a long-time expert on the Chinese economy and founding partner at Gavekal Dragonomics, delves into the complexities of the U.S.-China trade war. He discusses China's strategic responses, including its historical narratives and the push towards self-sufficiency. Kroeber highlights the challenges facing China's economic rebalancing, the impact of reduced exports, and the shifting dynamics in trade negotiations. He also touches on domestic strategies to boost consumer spending amidst external pressures, revealing a nuanced take on future U.S.-China relations.
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Why China Retaliated in Trade War
- China retaliated against US tariffs despite potential economic harm because they were "fed up" with lack of communication and felt confident they could withstand the impact.
- Retaliation served to maintain domestic credibility and signal resistance amid an already difficult external environment.
Mix of Long-Term Vision and Short-Termism
- China's long-term historical narrative motivates strategic economic planning but short-termism and crisis management are still prominent.
- Xi Jinping introduced longer-term goals like Made in China 2025, enhancing state capacity to steer development.
Chinese Firms Adapt Independently to Tariffs
- Chinese companies are increasingly internationalizing and relocating production to avoid tariffs independently of government direction.
- The US tariff strategy is chaotic and unlikely to succeed given China's global economic integration and multinational companies.